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Legal Brief: Expanding Extraterritorial Reach of Russia Sanctions

Junko Nozawa
Legal Writer

Editor’s Note: The ACAMS moneylaundering.com legal team examines the U.S. and EU’s use of secondary sanctions and other extraterritorial measures against Russia.

As Russia’s full-scale invasion of Ukraine enters its third year, financial sanctions with extraterritorial application have emerged as a powerful weapon in the U.S. arsenal to disrupt the Kremlin’s military and economic capabilities, and the EU may increasingly follow suit.

Secondary sanctions, which the Treasury Department’s Office of Foreign Assets Control generally uses to bar foreign financial institutions, or FFIs, that process transactions for adversarial nations from accessing the U.S. financial system through correspondent accounts, have long served as a critical, albeit controversial, component of American foreign policy.

In December 2023, the White House authorized OFAC in an executive order to impose such a prohibition on any FFI caught handling payments linked to Russia’s military-industrial base, regardless of whether the payments in question intersect with the U.S.

Six months later, in June 2024, OFAC broadened the application of the executive order to include parties blacklisted pursuant to the Russian Harmful Foreign Activities Sanctions Regulations.

Proponents argue that secondary sanctions amplify the impact of primary sanctions—namely, asset freezes—by deterring FFIs from processing payments potentially linked to U.S.-blacklisted parties and by encouraging them to adopt stricter due-diligence procedures.

On some occasions, the threat of secondary sanctions has had the desired impact.

Chinese banks, for example, ceased issuing U.S. dollar-denominated letters of credit to Russian entities shortly after the full-scale invasion of Ukraine began in February 2022, and since the issuance of Executive Order 14114 in December 2023, banks in Turkey, the United Arab Emirates and Central Asia have delayed or refused to process Russia-related payments.

A Russian diplomat raised concerns in October 2024 that the threat of U.S. secondary sanctions had made banks in India wary of handling payments to and from his country, three months before OFAC announced a massive expansion of such restrictions to encompass Kyrgyzstan-based OJSC Keremet Bank and dozens of entities within the Russian financial services sector.

The EU meanwhile officially views secondary sanctions, U.S. or otherwise, as contrary to international law, and has taken steps to prevent entities within the bloc from complying with them in the context of lawful commerce with Cuba and Iran.

The Council of Europe, the continent’s top human-rights organization, rejects claims that its sanctions are extraterritorially, although the impact of anti-circumvention policies—such as “no Russia” clauses for transferring intellectual property—is undeniably international.

While the U.S. approach directly targets third-party entities facilitating trade with Russia, the EU places the onus on the private sector to take reasonable steps to avoid violations.

Since December, the EU’s 14th round of sanctions against Russia during the full-scale invasion has placed new restrictions on exports of liquified natural gas and requires businesses within the bloc to put forward their “best efforts” to prevent their subsidiaries, including all foreign entities, from circumventing commercial and financial restrictions against Moscow.

The European Commission, the bloc’s executive branch, clarified the month prior that the “best efforts” standard depends on a range of factors, such as a company’s size, sector, resources and will to act against sanctions-evasion.

In December, the European Court of Justice broadened the scope of the EU’s embargo of Russia in ruling that selling weapons and other military equipment to Russian buyers violates sanctions, even if the goods never enter the bloc.

The EU then renewed sanctions against Russia for another six months, including a broad spectrum of sectoral and counter-circumvention measures.

Uncertainty as to whether U.S. secondary sanctions against Russia will remain in force, much less continue to proliferate, under President Donald Trump has prompted EU officials to solidify their own commercial and financial restrictions for the long term.

Contact Junko Nozawa at jnozawa@acams.org

Topics : Sanctions
Source: U.S.: OFAC , U.S.: White House/U.S. President , European Union
Document Date: February 3, 2025